Friday, October 12, 2012

European Day of Imaginativeness

A week ahead of the next EU Summit, new ideas, proposals and suggestions come thick and fast. However, the traditional jumble of ideas looks unlikely to already lead to concrete conclusions next week.

It was an eventful day yesterday. Several senior officials presented ideas, proposals and suggestions on possible next steps in the euro crisis. IMF head Christine Lagarde was the first, saying that the IMF was striving to save Greece, but that the country may need two years more than planned to get back on its own feet. Of course, Lagarde stated only the obvious, namely that the recessions in Eurozone peripheral countries currently undermined the austerity efforts, leading to a downward spiral – and not only in Greece. However, just one week ahead of the next EU summit and still awaiting the Troika report on Greece, Lagarde’s comments come at a sensitive moment.

Over the last weeks, there had already been signals that the Eurozone (including Germany) could be willing to give Greece more time. More time, however, would eventually also cost more money. According to market reports, a two-year delay of the austerity measures could lead to a financing gap of between €15bn and €30bn. Generally speaking, more time for Greece could be “bought” by two main options: a third bailout package or debt forgiveness. Within these boundaries, options like lower interest rates on the Greek loans, front-loading of the current bailout package and fiddling around with medium-term growth forecasts or a combination of all options could still be on the agenda.

Interestingly, German Finance Minister Schaeuble reacted immediately after Lagarde’s comments at the IMF/World Bank meetings, saying that debt forgiveness was not an issue. However, he did not comment on the possibility of giving Greece more time with its adjustment programme.

While Christine Lagarde increased pressure on Eurozone policymakers, not only to solve the Greek issue but also to seriously tackle the issue of Eurozone integration, EU President Van Rompuy revealed more details of his building blocks for more integration. At a speech in Brussels, Van Rompuy reiterated the three main areas of further integration: financial affairs, budgetary matters and economic policies. According to Van Rompuy, the immediate priority was progress in the banking sector with the well known Single Supervisory Mechanism. However, even if Van Rompuy called the efforts for a Single Supervisory Mechanism a sprint in the midst of an EMU marathon, this sprint looks more like a 800m run than a 100m sprint as principle agreement is still overshadowed by disagreement on many details.

The newest kid in the Eurozone integration town is the so-called fiscal capacity. This is a new buzzword which simply means a new Eurozone crisis fund to help suffering countries to fulfill all adjustment requirements. Eventually, this could become something like an unemployment compensation mechanism or a social solidarity mechanism. However, size, purpose, conditions and funding source are still more than unclear. Another new idea, which eventually could be linked to financial incentives, is to put structural reforms into binding contracts. Elsewhere yesterday, EP president Martin Schulz suggested that the next European elections could already see transnational front-runners.

All in all, the debate continues. Next week’s summit will probably not (yet) lead to any substantial conclusions; neither on Greece nor on further integration. Yesterday’s events nicely illustrated that Europe remains a region of thinkers and poets. There is clearly no lack of ideas, sometimes only of concrete decisions.